The Europeanisation of Corporate Governance in Germany and the UK

Abstract

[Introduction]. The business organisation is central to the functioning of any productive economy. It produces goods and services for consumers and generates wealth in the form of wages, profits, interest payments and taxes. It also imposes costs in the form of investments of time, capital and skills and produces externalities such as pollution and urban congestion. It then distributes these costs and benefits among the range of constituent groups that are in some way connected to the activities of the company. These ‘stakeholders’ - managers, investors, creditors, employees, suppliers, customers, communities, the state and wider social and economic interests – are bound in a pattern of structured relationships, both with each other and the corporate entity itself. ‘Corporate governance’ is broadly defined as ‘the system by which companies are directed and controlled’ (Cadbury, 1992:para. 2.5). This ‘system’ is understood here to refer to the rules and other institutions that define stakeholder relationships at the strategic level of the business enterprise. It both shapes and reflects the socially determined purpose of corporate activity by allocating strategic decision-making power among stakeholders and establishing a framework of rules and incentives within which stakeholder relationships are formed and maintained.